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Most
seniors who own a life insurance policy likely purchased that policy
years ago to provide financial protection for their
families. However, as children become adults, the need for such
protection and the desire to continue paying premiums changes. The life
insurance policy is no longer a vehicle for financial security. It
is a personal asset in the retirement portfolio. And like any other
asset, an evaluation is undertaken to determine if keeping or selling
it is in the owner’s best interest.
The
following questions should be asked:
Is the life insurance
policy needed for estate planning purposes?
Some owners
acquired life insurance policies so their heirs could receive tax-free
income at the time of the insured’s passing, helping them pay a large
estate tax bill when the assets are inherited. However, The Tax Cuts
and Jobs Act of 2017 contained some important
changes to the federal estate tax calculation, most
notably doubling the estate tax exemption to $11.2 million per
individual and $22.4 million, with portability, for a married
couple. With the change, only approximately 1,800 estates
each year will be subject to federal estate taxes. Therefore, it
is no longer a consideration for the overwhelming majority of
Americans.
Is the cost to
maintain the life insurance policy worth the benefit?
Many
seniors discover that the projected costs to maintain an insurance
policy are increasing more than they anticipated. They are often living longer than
expected – which is a great development – but their increasing age can
drive premiums to excessive levels. At Welcome Funds, we evaluate
life insurance policies where the family was simply not prepared to
fund the premiums for more than 20 years. Maintaining the policy is
burdensome.
Are the proceeds from
the life insurance policy earmarked toward repayment of any debts or
unpaid expenses?
Many people
purchase life insurance to provide an income stream to finance
anticipated future obligations. Examples include funding educational
expenses for children or grandchildren, paying for funeral expenses, or
leaving behind a charitable legacy. However, many seniors now in
their golden years have had time and opportunity to address each of
those anticipated financial needs in other ways, so the life insurance
asset is no longer playing this role in their portfolios.
The answers
to the above questions help determine whether a life insurance policy
is still performing a strategic and necessary role. It begins by
viewing a life insurance policy as just another asset inside a
retirement portfolio instead of an umbrella of financial protection. If
the policy is no longer serving a portfolio’s objectives, then it may
be time to liquidate the asset.
One such
liquidation exit strategy, for qualified candidates, is selling the
policy as a life settlement to
an institutional investor within the well-regulated secondary market
for life insurance. A life settlement generates cash for the
policy owner, which can be invested into another asset or allocated for
other retirement planning purposes while eliminating the burden of
paying premium payments, which is assumed by the investor | 
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